GLOBAL MARKETS-Stocks head for best week in 8 months, dollar bounces

Reuters Staff

5 Min Read

* Euro shares extend gains, best week for world stocks in 8
months
* Fed cheer gives way to caution ahead of Chinese data on
Monday
* Dollar bounces, currencies steadier after wild ride
By Marc Jones
LONDON, July 12 (Reuters) - World shares headed for their
best week in eight months on Friday in the wake of reassuring
comments from the Federal Reserve on its stimulus programme,
while the dollar bounced as focus switched to U.S. earnings and
China's economy.
Wall Street was expected to see a tentative start to the day
after its record high finish on Thursday, with investors
starting to digest a clutch of earnings reports from top U.S
banks including JP Morgan and Wells Fargo.
European shares rose steadily through the day as investors
shrugged off some caution in Asia after China's finance minister
doused hopes of fresh stimulus, saying growth of below 7 percent
was acceptable for Beijing.
The broad FTSEurofirst 300 was up 0.5 percent ahead
of the U.S. open and was more than 3 percent higher on the week,
while MSCI's world index looked on course for
its best week since November.
This week's rally in financial markets has spread across
stocks and bonds to oil and metals and been driven by hints from
the U.S. Federal Reserve that it may not be as eager to phase
out its support as markets had started to believe.
"It is a win-win situation (for investors). If the economic
data does start to pick up, it will be a gradual tapering of QE
and if it does not, then they will keep the liquidity tap on,"
said Chris Bates, analyst at Smith and Williamson.
After a week of swings in the world's big currencies,
foreign exchange markets were trading in a calmer fashion,
though positioning had started ahead of Chinese growth data due
on Monday.
The dollar index, which plots the greenback's
performance against a basket of major currencies, bounced off 2
1/2 week lows, having slumped more than 2 percent since Fed
Chairman Ben Bernanke assured it would remain in support mode.
That was the steepest fall in four years, normally seen only
during financial crises.
"We are still structurally bullish dollar across a range of
currencies including the euro and sterling," said Chris Walker,
a currency strategist at Barclays.
"What we saw this week was a washout of long dollar
positions, but also a realisation that Fed tightening is still
some way out."
The euro slipped to $1.3024, having jumped as far as
$1.3208 on Thursday though it was well off this week's trough of
$1.2755.
One of the European Central Bank's top policymakers, Peter
Praet, added to the pressure on the currency, saying the bank
will keep interest rates at current levels or cut them even
further, as long as inflation remains moderate.
PORTUGAL STRIFE
Portuguese government bonds fell again after
Lisbon requested a delay to the next review of the country's
bailout programme due to its political crisis.
Tensions were reignited this week after the country's
president threw out plans that looked to have patched up a
government rift and instead demanded some kind of grand
coalition. That would include opposition Socialists, who are
distinctly cool on the government's austerity and have been
calling for snap elections.
"Portugal is struggling as the government delays the next
quarterly review to the end of August, which is clearly fuelling
fears that Portugal doesn't have the appetite for further fiscal
consolidation measures in place," said Nick Stamenkovic, a rate
strategist at RIA Capital Markets.
The rest of the currency bloc made gains, however, supported
by the Fed's soothing message this week and with Irish debt
lifted by an upgrade to Ireland's credit outlook by Standard &
Poor's.
COMMODITY GAINS
Commodity markets have also enjoyed a strong run this week
as the talk of continuing central bank support has bolstered
hopes of a pickup in global growth.
Gold eased 1 percent after four days of gains, having
earlier been on track for its biggest weekly gain in nearly two
years. Copper was still cruising to its best week in two
months although it dipped back 0.7 percent to below $7,000 a
tonne.
Disappointing Chinese growth data on Monday could hurt
commodities, though, while commodity-related currencies such as
the Australian dollar would also be vulnerable.
After their recent turbulence, emerging market stocks were
heading for a rare week of gains, recouping some of the 11
percent they have shed since the Fed started making noises about
slowing its money printing programme.
Brent oil was steady at just under $108 a barrel,
having hit a three-month high on Thursday as the prospect of
more supply from non-OPEC producers and concerns about China's
demand growth capped gains.
"We are seeing some concern that the upward momentum (in
prices) has reversed," said Michael McCarthy, chief market
strategist at CMC Global Markets in Sydney.